Stock market trading is the buying and selling of stocks of publicly listed companies. Whenever an investor buys stock in a particular company he/she is buying a proportional share of ownership in the company. Growth is realized by an increase in the stock’s value while dividends from earnings are paid to the shareholders.
Types of Stock Market Trading
Stock market trading is of several different types including futures, equities, options, or simple stocks along with several other more complicated investment vehicles. It is up to the investor to define his/her goal of trading.
What is Stock Trading?
Stock trading is somewhat of a misleading term because stocks are technically not traded. The term refers to the activity of buying and selling stocks or equities. The process involves buying a stock at a price determined by several factors with the most prominent one being how much of it is bought and sold by other investors.
The price of a stock will rise as more investors buy it and the shares originally bought by the investor become more valuable. If the investor sells the stock at a higher price than it was originally bought, then he/she will make a profit. Similarly, the investor will make a loss if he/she sells the stock at a price lower than it was originally bought.
Where Is Stock Trading Done?
Stock trading is typically done on two key platforms:
Stock Exchange Floor: It is a physical exchange floor where transactions are completed using gestures, overhead monitors, and handheld terminals. The stock exchange floor is what comes to mind when many people think about stock trading. The New York Stock Exchange is the most famous stock exchange floor.
Electronic Exchanges: The electronic exchange is a completely electronic exchange. It uses a sophisticated network of computers to match stock buyers with stock sellers. It is what makes electronic exchanges quite fast with almost instantaneous confirmation of trades. Electronic exchanges may give investors an added feeling of control over trades, but either option i.e. electronic exchanges or exchange floors still requires a stockbroker.
What is a Stockbroker?
Individual investors don’t have direct access to the stock market. The role of the stockbrokers is to ensure that the exchange rules are adhered to and that all the stock traders have the necessary funding to complete transactions.
Here are the steps involved when buying and selling stocks:
First, you choose a stockbroker, establish an account with the broker, and deposit money into the account. Next, research your preferred stocks and decide on the number of shares you would like to buy. Finally, the broker places the order and the trade will complete the trade.
Risk in Stock Trading
Risk is a major part of stock market trading and any potential investor looking to put his/her money in the stock market should be ready to accept this fact before proceeding. However, investors can lower this risk by learning as much as possible about potential investments before they move forward.
The Bottom Line
Stock market trading is an exciting activity although it can seem overwhelming at first especially for beginners. The information provided here should be enough to give you a basic understanding of what to expect, but it is important to realize that becoming successful with stock trading requires a lot more investment in education and practice.